Planning for Your Future: Estate Plan or Business Succession Plan

As we start 2023, you may want to think about creating or updating your estate plan or business succession plan. Estate and business succession planning are important for many reasons, including protecting your hard-earned assets, providing for your family in the event you are unable, and minimizing taxes. Making the difficult decisions now will avoid difficulties and potential disputes for your family and potential business partners in the future, and utilizing multiple estate planning tools will ensure you and your assets are protected both during your lifetime, and after you pass away. 

Without a will or an estate plan, the Texas intestate succession laws will control the distribution of your estate upon your passing, which may not be the distribution you intended, particularly for a blended family, or a family with a mix of surviving parents, children, and siblings. By putting together an estate plan, you will control the transfer of your assets, choose who will care for your minor children if you were to unexpectedly pass, and avoid disputes, regardless of your wealth. Additionally, for high-net-worth individuals, it is likely prudent to consider the utilization of grantor trusts, spousal lifetime access trusts, and strategic gifting to reduce taxes and improve the efficiency of wealth transfers.

Below is a 2023 update for consideration:

  • As of January 1, 2023, the federal gift and estate tax lifetime exclusion amount (and (GST) exemption) has increased to $12,920,000 per individual (a combined $25,840,000 for a married couple).
    • This increase over last year’s amount of $860,000 per donor could present additional gifting opportunities for individuals who had previously used their full lifetime exclusion amounts.
    • Be aware the lifetime exclusion amounts are scheduled to decrease on January 1, 2026, to approximately $5-6M per donor, adjusted for inflation, unless Congress acts to prevent the decrease. 
      • This presents a scenario where approximately $6-7M of currently available tax-free gifts will disappear as of the first day of 2026, so current gifting or planning to make gifts between now and the end of 2025 should be considered.
  • As of January 1, 2023, the federal gift tax annual exclusion amount has increased to $17,000. You can gift up to $17,000 per recipient per calendar year without using any lifetime exclusion amounts or paying any gift tax.
    • By giving gifts up to this amount to multiple loved ones each year, you could (1) give them the added benefit of such a gift now, and (2) potentially alleviate a larger tax burden down. 
  • The ability to transfer a decedent’s unused federal estate tax exclusion amount to the decedent’s surviving spouse by filing a federal estate tax return remains in effect for 2023, and the period for a late filing to make such election has been extended to five years after the decedent’s death. Making this election following a married individual’s death is prudent if the surviving spouse’s estate might exceed the survivor’s available exclusion amount (particularly considering the pending decrease in 2026). If your spouse died within the last five years and this election was not made, and your estate might now exceed your lifetime exclusion amount ($12,920,000), you should consider making the election now.
  • Several changes related to retirement plan contributions for 2023 were implemented by the Secure 2.0 Act, including 1) increasing the applicable age for starting required minimum distributions (RMDs) to 73; 2) elimination of pre-death RMDs from Roth accounts in 401(k) and 403(b) plans after 2023; and 3) increasing the number of catch-up contributions allowed by some participants starting in 2025. 
  • The contribution limit for 401(k) plans will increase in 2023 to $22,500 (from $20,500), and the limit for catch-up contributions to such plans for people over age 50 will increase to $7,500 (from $6,500).
  • The limit on annual contributions to an IRA will increase to $6,500 (from $6,000), though the IRA catch-up contribution limit remains at $1,000.

Now is an important time to consider, or reconsider your current estate plan and business succession plan opportunities, and we at Musgrove Law Firm, P.C., are available to help you with any relevant estate plan or business succession planning needs that arise.

© 2023 Frank Ehman. All Rights Reserved

The lawyers of Musgrove Law Firm, P.C. are available to assist our clients with intellectual property; mergers & acquisitions; complex business; federal, state, and local income tax matters; and real estate and estate planning matters among our specialties. Our goal is to be not only excellent lawyers but true business partners with our valued clients. Contact us today to schedule a consultation regarding your important legal matters.